ECB rate rise to increase repayments for Cyprus floating-rate borrowers

Nicosia, Cyprus. Borrowers with floating-rate loans are expected to face higher repayments following the European Central Bank’s latest interest rate increase, although changes will not take effect immediately in all cases, the Association of Cyprus Banks said on Thursday.

The ECB raised its three key interest rates by 25 basis points, or 0.25 percentage points, as it seeks to contain inflation and maintain price stability in the euro area.

Loan review dates determine timing

The Association of Cyprus Banks said the timing and scale of changes to monthly repayments would depend on the terms of each loan agreement and the reference rate used.

Repayments would generally be revised on the next scheduled interest rate review date rather than immediately after the ECB’s decision.

Depending on the reference rate, this may coincide with the date the new ECB rates took effect or occur at intervals of three, six or 12 months. Relevant benchmarks include Euribor and banks’ base rates.

Three categories of affected loans

The association identified three main categories of floating-rate loans: those linked to Euribor, the ECB interest rate or a bank’s base rate.

Borrowers can determine whether their loans are affected and estimate the impact by reviewing their loan agreements, the association said.

Indicative repayment increase

The size of any repayment increase will depend on the outstanding loan balance and the remaining repayment period.

As an indication, a 0.25 percentage point increase on a €100,000 loan with between 15 and 20 years remaining would raise the monthly repayment by approximately €12 to €15.

The calculation would operate in reverse if interest rates fall, reducing monthly repayments accordingly.